Oxford dictionary defines disruptive as something that causes disruption, and innovation as a new method, idea, or product. After combining these two, the sentence that forms is “a new idea that causes disruption”. That’s what disruptive innovation is. But wait… it really means this much only? Then what did Clayton M. Christensen wrote in his 288 pages book about Disruptive Innovation? Of course, there’s much more to learn.
Entrants vs. Incumbents
Before we begin, let’s discuss two important terms that are just as important as Romeo and Juliet in Cesar’s Romeo and Juliet play i.e. Entrants and Incumbents.
- Entrants: A relatively new company as compared to existing companies
- Incumbents: Old companies that hold relatively a large piece of market share.
Whenever a situation occurs where Entrants provide a service that Incumbents provide, but at a better level and lower costs, disruption occurs.
Let me share a story.
Take an example of Xerox. Xerox only targeted large corporations and charged them heavily such that small and medium enterprises, school libraries, and other business were not even considered by Xerox, and they needed to use Carbon paper to make multiple copies. The first ever photocopier was sold in millions and that was 1959. Very soon new Entrants came to the market and hit the market where none existed. They targeted the segments that were overlooked by Xerox and gained a strong foothold there by proving a good service at a relatively lower price. Very soon, Entrants successfully start capturing the market that Xerox already had a strong foothold at i.e. large corporations. Ultimately the only option left for Xerox is to adopt the lower price rate to sell its products.
What is Disruptive Innovation?
So you’ve read it as an example. Now let’s dive in a little bit deeper as it is much more than that.
“Disruption” describes a process where Entrants successfully challenges Incumbents with relatively fewer resources. Very rarely any Incumbents target each market segment. They generally target those segment where they get maximum profit and overlook others. Entrants try to capture that overlooked segment by providing better services or products at a generally lower cost. Incumbents generally don’t react to them actively. After gaining a strong foothold, Entrants capture the segment where Incumbents already have a good foothold by using the same method that gave them early success. To keep getting revenue or to minimize loss, Incumbents start adopting Entrants’ offering, and that’s where disruption starts.
Disruptive Innovation Against Performance
When it comes to performance, Disruptive Innovation doesn’t care about it in its initial phase. Its most important aspect is to just launch the product in a market, that does not exist.
That actually makes sense. Whenever a product launch that is going to disrupt the market in future, it did not launch with all of its features at once. Founders only decide to launch MVP (Most Viable Product) first which only includes its core feature, and hence its performance is not at all optimized.
Figure 1: Disruptive Innovation
Time by time, founders improve the product’s performance so that it meets the customers’ expectations, and product that started with low performance touches most demanding performance. Not to be surprised, an increase in performance increases the cost, but the cost is surprisingly less to what offers by Incumbents.
Digital Magazine is a good example here. When it firstly launched years ago, people did not know what it was. Most importantly, no one cared about the performance as long as it meets a very low threshold. Incumbents didn’t even bother to adopt those because they thought there was no market. There certainly wasn’t any. There were no laptops, tablets, not even smartphones. But with the launch of iPhone in 2007 and iPad in 2010, digital publishing took over the world by storm. People started to find that reading on tablets is better than reading a printed magazine. It’s better to carry a 300 grams device where all of your magazines are stored rather than carry 10 magazines that weigh 100 grams each.